2.15 Departments and public bodies must ensure that the best use is made of leased office accommodation space, bearing in mind the costs associated with entering long-term lease commitments which often span over a 15 year term. As departments and public bodies do not have to use Properties Division and may organise and manage their own office accommodation, there is a risk that this will not be carried out in a co-ordinated manner. Case Study 7 relates to a lease agreed by the Child Maintenance and Enforcement Division and highlights the implications for any public body entering such long-term commitments. Tenants may
47 National Audit Office: Improving the efficiency of central government office property: 2 March 2012
48 The NAO applied a similar methodology in their 2012 report on “Improving the efficiency of central government office property”.
Part Two:
There is scope for significant efficiency savings through more
effective management of property assets
Property Asset Management in Central Government 33
Case Study 6
Properties Division has made significant savings by improving the operating efficiency of the estate
In adopting a strategic approach to the management of its portfolio of leased and freehold buildings, Properties Division has made significant savings. It has improved the operating efficiency of the estate by reducing its size and increasing staff numbers in the remaining buildings. Over the period 2009 -10 to 2011-12 this centrally managed approach has resulted in:
- the vacation and release of 21 buildings; - a reduction in floor space of 26,000 m2; and
- savings estimated at £4m a year on rent, rates and service charges.
Properties Division estimate that this has also saved approximately £1 million a year on energy and facilities management services (maintenance, cleaning, etc.). The investment required to achieve these savings was £5 million, representing a payback of just over one year.
Source: Properties Division
Source: NIAO based on Properties Division data
Figure 9: Expiration of leases and associated property costs each year to 2022
0 1 2 3 4 5 6 7 8 9 10 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 pre 2012
Year of Lease Expiration
Proper
Case Study 7
Oyster House
The Department for Social Development’s Child Maintenance and Enforcement Division (formerly the Northern Ireland Child Support Agency) secured accommodation in Oyster House in 2006-07. The contract is managed by the Child Maintenance and Enforcement Division and the costs shared with the Department for Work and Pensions in Great Britain. The key terms of the lease, which was entered into without consulting DFP Properties Division, were:
Period: September 2006 to 31 March 2015.
Annual Lease Cost: £201,800 (with a five year review in September 2011)
Break option: None
Other relevant points:
(1) Child Maintenance and Enforcement Division to be responsible for refurbishment costs – amounted to £883,000 refurbishment; and
(2) The lease included an “alienation” clause which does not permit the tenant to part with, share, or underlet the premises to anyone other than a Northern Ireland or UK government department.
At the end of June 2010, three years after moving into the building, it was vacated with staff moving to Millennium House and back to the Great Northern Tower in Great Victoria Street, Belfast. With four years 9 months remaining on the lease the Department was committed to incurring lease costs of almost £1 million until the lease expired at the end of March 2015.
Land and Property Services (LPS) were not able to find alternative full time tenants to take over the lease of Oyster House for the remaining years. As a result the building lay vacant for almost two years incurring total property costs in excess of £550k. However, from June to October 2012 it has been used as a decant facility by 300 staff from Department of Agriculture and Rural Development following severe flood damage to Dundonald House which rendered it uninhabitable. The Child Maintenance and Enforcement Division are to recoup costs of approximately £7,500 per week from DFP Properties Division for use of the accommodation. Then from October Oyster House will be used as a decant facility for Department for Social Development staff from CastleCourt, to enable refurbishment for the Universal Credit launch site. From December 2013 it is envisaged that the Oyster House accommodation will be used to house Department for Social Development staff processing the new Personal Independence Payment and will continue to be occupied until the lease expiry date in March 2015.
Source: NIAO based on information supplied by Child Maintenance and Enforcement Division
Part Two:
There is scope for significant efficiency savings through more
effective management of property assets
Property Asset Management in Central Government 35
incur major expenditure on initial fitting out of the premises and dilapidation costs at the end of the lease. Should the lease be exited early, as in Case Study 7, the terms and conditions of long-term leases may reduce flexibility and mean that leases cannot be reassigned with ease and result in fruitless payments for unoccupied space.
2.16 Case Study 8 presents the outcome of recent rent reviews of five major Belfast City Centre properties accommodating over 2,000 staff. Value for money must be considered in the context of commitments to these long-term leases, as they do not offer the flexibility of shorter leases. LPS commented that shorter leases for new “Grade A” space may not be obtainable from commercial suppliers, or only at significantly higher initial cost. However, the conditions attached to longer term leases often mean that they cannot be reassigned with ease or only be used by public sector bodies. This may negate any savings gained through committing to longer term leases. It is therefore important that the need for leased accommodation is identified over the full term of the lease as the public sector is generally committed to this period.